Improve Your Performance Management

by Toby Hatch, February 2010

Most control mechanisms and performance management within organizations today are hierarchical in nature. At the same time, business success often depends on partnerships with suppliers, the interaction with indirect channels, and many other involved third parties. In order to make these partnerships work, there needs to be a great deal of collaboration, trust, and respect between them.

Recently, there has been a growing interest in applying the process of performance management and scorecarding to intercompany relationships. Although performance management is well established and successful in classic vendor-client interactions—such as supply chain management or business process outsourcing—it is recognized that the typical contractual performance instruments employed, such as service-level agreements (SLAs), do little to promote joint performance achievement and the type of cooperation that develops trust. SLAs are often used more to enforce a basic standard than to promote true collaboration.

In its most recent annual report on modern business methods and tools, Bain & Co. identified that approximately 45 percent of companies surveyed currently use strategic alliances as part of their corporate management philosophy. When asked about their future plans to engage in strategic alliances, more than 70 percent stated they expected to be involved with this practice in the upcoming year. This is a seismic shift in the acceptance and perceived value of partnering. One can only hope that the trust component of these relationships will be up to the task.

Oracle proposes the use of scorecards not only within organizations but particularly between organizations. Going through the process of setting up the right joint performance indicators validates the compatibility of business goals between partners and also enhances partnership trust in a variety of ways: through cooperation in developing the joint action plan and promoting consensus on the measures of success; through the selection and prioritization of measures that appear on this scorecard; and through the active sharing of scorecards, which help provide an “early warning system” by which the partners can take corrective action in a collaborative—not punitive—fashion.

Today, most performance indicators are focused on the organization itself. The performance indicators that deal with partnerships often sing the song “What Have You Done for Me Lately.” But business performance in partnerships is reciprocal. You can count on the contributions of your partners only if you are also willing to entertain their requirements. “What Have I Done for You Lately” is a new tune for many scorecards and is crucial for reaching the #1 position.